Gold Outlook: A V-Shaped Bounce Defies the Hikes — Rates and Geopolitics Still Call the Shots

Gold fell before recovering last week. Early on, surging oil prices, rising rate-hike expectations, and Treasury yields pushing toward 5% weighed on gold. But once the Fed and the Bank of Japan delivered their 25 basis point hikes, pressure from oil eased and short covering drove a swift rebound, bringing an end to three consecutive weeks of decline.

Heading into this week, market focus is shifting away from the hikes themselves and toward what comes next in the policy path. A run of Fed speakers is lined up, and markets will keep assessing whether another hike is still on the table before year-end. External variables — the Middle East situation and the U.S.-China summit — are also likely to help shape price action.

On the XAUUSD daily chart, gold carved out a clear V-shaped recovery last week, with the FOMC meeting as the dividing line. Bears were in control in the first half of the week, pushing gold below $4,300 at one point, but bulls quickly clawed back the losses in the second half, breaking the sequence of lower highs that had been in place since late August — an improvement in the near-term technical picture.

In the near term, $4,400 is the key line between bulls and bears. A decisive break above this level could suggest that the current rebound is more than just a case of bad news being fully priced in, with bulls then positioned to push toward $4,500. On the other hand, if price stalls and pulls back, $4,300 and $4,200 are the support levels worth watching below.

Overall, with the rate decision now behind us and the market in a digestion phase, gold is likely to stay rangebound in the near term, with a genuine directional move needing a clearer catalyst.

Gold rebounded even as the Fed and the Bank of Japan both delivered 25 basis point hikes. One way to read this is as a "sell the rumor, buy the fact" reaction now that the hikes were fully priced in — but that may not be the whole story.

The Fed's latest dot plot shows 16 of 18 policymakers expecting at least one more hike before year-end, and the swap market is currently pricing in roughly a 30% probability of a cumulative 50 basis points of hikes by year-end. Against a backdrop of hawkish rate expectations from major central banks, elevated long-end Treasury yields, and the dollar index back near 100, gold's resilience suggests the forces driving its price may no longer be about rates alone.

Elevated long-end Treasury yields reflect more than just growth and inflation expectations — they also capture concerns about the expansion of the U.S. fiscal deficit and growing sovereign credit risk around the dollar. In other words, the opportunity-cost disadvantage of holding gold is being partly offset by a discount tied to the erosion of dollar credibility.

Geopolitics is the other main theme shaping gold right now.

The Fed's hike reinforced concerns about a high-rate environment and slowing global demand, while reports of Saudi cargo being rerouted through Oman briefly eased worries about supply. Softer demand combined with improving supply expectations pushed oil prices lower in the near term and gave gold a lift — though how the geopolitical situation develops from here remains highly uncertain.

On one hand, an escalation in Houthi attacks on Saudi Arabia has hit oil production and transport infrastructure. Conditions in the Strait of Hormuz remain difficult, and the premium on physical Brent crude remains elevated — a sign that supply pressure in the physical market has not fully eased.

If the conflict escalates further, oil prices could climb again, reinforcing the "higher energy prices → rising inflation pressure → higher rate-hike expectations" pathway and triggering a pullback in gold.

On the other hand, Iran conveyed seven negotiating conditions through Qatar over the weekend, and the U.S. has signaled a willingness to talk. If U.S.-Iran negotiations make real progress, that would directly weigh on oil prices and inflation expectations — supportive for gold.

That said, rather than headline geopolitical news and short-term oil price swings, gold traders should pay closer attention to whether market expectations around inflation and rates undergo a more fundamental shift.

Overall, gold's rebound after the hikes reflects both short-term factors — the "buy the facts" dynamic and falling oil — and longer-term support from credit risk concerns and central bank buying.

Looking ahead, beyond potential developments in the Middle East and oil prices, the market's core focus remains the Fed's policy path, along with the upcoming U.S.-China summit in Washington.

A wave of Fed speakers is scheduled this week, including New York Fed President Williams and Fed Vice Chair Jefferson. Markets will be looking closely for their views on inflation, long-end rates, and the odds of a further hike before year-end.

If officials strike a broadly hawkish tone, the dollar and Treasury yields could gain further support, limiting gold's room to rebound. If the tone is more measured, easing expectations for further tightening, that could give gold some breathing room.

Following May's meeting, U.S. and Chinese leaders are set to hold their second summit of the year on Thursday. Reports indicate the agenda will cover tariffs, the AI regulatory framework, tech competition, supply chain controls, and geopolitical relations.

If both sides signal further easing, risk assets could strengthen while gold's safe-haven demand eases. If talks hit friction again, that could reignite market uncertainty — supportive for gold.